What Business Groups See In The New UCC

Written By Anthony Obadal and by Christian KleinArticle Date: 08-01-2004Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
The end result will be less uniformity in the UCC and more litigation.

There’s a storm brewing on the policy front. The culprits this time around are the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL), unelected academics, lawyers and judges who, because they are responsible for drafting the Uniform Commercial Code (UCC), have a tremendous impact on the way business is conducted in this country.
The UCC is a uniform law that’s been adopted either in whole or in large part by most states. It provides a consistent and common system of contract law and gives businesses and consumers a higher level of predictability about how state courts will interpret transactions and resolve disputes. An important theory underlying the UCC is that parties should have wide latitude in deciding contract terms, but that the UCC should fill in gaps when a contract is silent on an issue and help resolve ambiguities when a contract term is unclear.
The gathering storm has to do with amendments the ALI and NCCUSL recently proposed to UCC Articles 1 (General Provisions) and 2 (Sales). Some legal experts suggest the proposals will tilt the balance of the UCC heavily towards consumers, create myriad new opportunities for litigation, particularly class action suits, and further undermine the consistent application of the UCC from state to state.
The first item of concern is a proposed amendment to UCC Article 2-108(b) that would make UCC transactions subject to any “rule of law that establishes a different rule for customers.” It’s feared this provision would open the door to state courts to import their own non-legislative tort or contract law theories into the UCC.
A second proposed change that has business groups up in arms threatens to encourage forum shopping in cases arising under the UCC. Forum shopping occurs when a suit is filed in a state that has the most favorable laws to the plaintiff. Under current practice, the forum for resolution of disputes can be specified in the sales contract and courts will generally uphold the will of the contracting parties. This provides both parties with a level of predictability about where they might be involved in litigation and allows selection of a mutually convenient forum. However, under the proposed new UCC Article 1-301(d), suits related to enforcement of contract obligations could be brought in any state that a consumer happens to move to after the sale takes place.
A third amendment would potentially allow the UCC to become the basis for law suits alleging false advertising, despite the fact that federal and state consumer protection laws already provide more than adequate coverage in this area. The new UCC Sec. 2-213 would create obligations on the part of sellers to “remote purchasers,” i.e., buyers with whom the seller does not have a direct contract, for advertisements and other communications to the public about products. Experts believe this will be fertile ground for new litigation and class actions.
Another UCC change would allow buyers to keep goods (e.g., pieces of equipment) claimed to be defective and continue to use them, paying the seller only for the value allegedly found in the use of the defective goods.
As you might guess, those are just a few of the particularly pernicious proposals. There are plenty more.
For more than 10 years, business groups have been communicating with the ALI and NCCUSL in an effort to reach a workable compromise on the new UCC provisions. Unfortunately, our concerns have fallen on deaf ears and now there is too much to fix and no procedure to do so. NCCUSL is pushing ahead with its effort to get the UCC changes enacted into law around the country. We expect bills to be introduced in state capitals in the near future, possibly as early as this fall.
In failing to address the business community’s concerns that the proposed UCC changes will lead to more litigation and less consistency, the ALI and NCCUSL have made a mistake. If the gathering opposition we see in Washington is any indication, there will be fights in every state capital as the UCC changes move forward.
As a result, it’s likely that some states will reject the changes, some states will adopt them piecemeal, and in a few places, they’ll be adopted in their entirety over the business community’s objections. Unfortunately, the end result will be even less uniformity in the UCC, more uncertainty, and more litigation.
Excerpted from August 2004 Construction Equipment Distribution.
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